Apple was forced to make drastic cuts to production forecasts for the Vision Pro mixed reality headset, unveiled last month after seven years in development and hailed as its most significant product launch since the iPhone.
The complexity of the headset’s design and manufacturing difficulties are behind the scaling back of the targets, while plans for a cheaper version of the device had to be pushed back, according to multiple people with first-hand knowledge of the manufacturing process.
Apple has already signaled that the $3,500 spatial computing headset device won’t go on sale until early next year, a long gap since its June 5 launch. Analysts interpreted this as having more to do with supply chain issues rather than allowing developers time to build apps for Vision Pro.
Two people close to Apple and Luxshare, the Chinese contract manufacturer that will initially assemble the device, said it was preparing to produce fewer than 400,000 units in 2024. Several industry sources said Luxshare is currently Apple’s sole assembler. of the device. Separately, two China-based one-off suppliers of some components for the Vision Pro said Apple was only asking them for enough for 130,000-150,000 units in the first year.
Both projections imply a significant production cut from a previous domestic sales target of 1 million units in the first 12 months. The forecast of low volumes reflects Apple’s lack of confidence in scaling production, according to analysts and industry experts, after years of missing deadlines to launch the device.
Forecasts by Wall Street analysts for Vision Pro sales range widely, from a few hundred thousand to several million in its first year. When unveiling the headphones a month ago, Wedbush predicted Apple would ship around 150,000 units in the first year, while Morgan Stanley’s estimate was around 850,000, and Goldman Sachs believed it could reach as many as 5 million shipments in 2024. By comparison, Apple sold 1.4 million iPhones in its first year on the market.
Apple, whose market valuation closed above $3 trillion on Friday three weeks after the headset announcement, declined to comment on the Vision Pro.
Luxshare did not respond to a request for comment.
Among the main obstacles to face is the production of the elegant screens for the device. They consist of two micro-OLED displays, one for each eye, and a curved, outward-facing lenticular lens. The internal displays offer a resolution that surpasses anything currently on the market, while the external lens projects the headset wearer’s eyes towards the outside world.
The micro-OLED displays for the prototypes in the June demonstration were provided by Sony and chipmaker TSMC, according to two people familiar with the situation. Sony and TSMC declined to comment on any roles in Vision Pro.
Apple hasn’t been satisfied with the productivity of suppliers, those people said, especially with the yield of the defect-free micro-OLEDs. The displays are the most expensive component of Vision Pro.
Many of these are normal growth issues, said Jay Goldberg, founder of technology consultancy D/D Advisors. This is the most complex consumer device anyone has ever made.
Goldberg said the higher-than-expected $3,500 price tag already implied that Apple had absorbed the cost of manufacturing inefficiencies, knowing manufacturing yields were particularly low compared to mature products in Apple’s portfolio.
Someone has to pay for it, he added. I think Apple went into this with a lot of bad returns built into the model. There is a lot of technology in Vision Pro and they knew it would take time to expand. Apple knows it won’t make any money on it in the first year.
Sony was cautious about how much the mixed reality headset market would expand and was reluctant to ramp production significantly, Terushi Shimizu, head of Sony’s semiconductor unit, said at a recent media roundtable.
We’ll be watching to see how much demand [for micro-OLED displays] it will increase, he said. But I don’t think we will be aggressive [in producing] on the same scale as image sensors, for which Sony is building a new plant to ramp up production of the chips used in smartphone cameras.
Meanwhile, Apple is already working on next generations of the headphones, including a cheaper version that should appeal more to mass-market consumers, two people with direct knowledge said.
Apple is working with Korean display makers Samsung and LG on this second-generation headset. To bring the price down, the iPhone maker explored using other display technologies, including mini-LED, but two people said Apple insisted on using micro-OLED for non-Pro headphones as well, though so far all suppliers had failed to meet its expectations.
The cut to its 2024 forecast disappointed Luxshare, which is gearing up its capacity to be able to build nearly 18 million units a year over the next few years, according to a person close to the assembler.
Analysts said the entire headphone supply chain in Asia didn’t get a big boost from Vision Pro. Apple didn’t make a better product than the industry imagined…manufacturer confidence isn’t high, it has said Eddie Han, an analyst at Taiwan-based Isaiah Research.
Despite the setbacks, market intelligence group Canalys believed Apple would surpass a 20 million user base within five years of launch.
Given limited production numbers, it will fly off the shelves, pre-ordered by loyal Apple fans and high-net-worth users in the United States, Canalys analyst Jason Low said. He currently projected that Apple would produce 350,000 units next year, increasing to 12.6 million units five years later.
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